ben bernanke defends bank stress tests, usd

excerpts from
Ben Bernanke defends bank stress tests, US dollar
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Michael S. Derby | May 12, 2009

Article from: Dow Jones Newswires
FEDERAL Reserve chairman Ben Bernanke has defended the recent stress tests of America's biggest banks, as well as the US dollar.

Dr Bernanke pointed out in his remarks much of the shortfall had already been covered, and that the affected banks needed only increase their equity buffer by $US75 billion.

The Fed has taken criticism from some quarters that the exercise was insufficiently tough, and that the outcome understates the true nature of the financial challenges facing banks. Dr Bernanke's speech sought to allay those concerns.

"It will be some time before we can evaluate the success of the program" on one of its primary goals, which was restoring investor confidence in the state of the financial system, Dr Bernanke said.

Dr Bernanke was speaking at an event held by the Federal Reserve Bank of Atlanta.
He made an unusual foray into defending the dollar, a subject that is traditionally avoided by central bankers.

“For the foreseeable future, the dollar will remain the leading currency both for reserves and transactions,” Dr Bernanke said.

“The issue at hand is whether or not the dollar will retain its value, and I think it will. I think it will be strong.”

The dollar will stay strong “because the US economy is strong”, and because “the Federal Reserve is committed to making sure we have price stability in this country”.

While the Fed has been “very aggressive” in its efforts to revive the financial system and economy, Dr Bernanke said policy makers were “committed to removing accommodation in a timely way” once the economy recovered, to ensure price stability would prevail.

Dr Bernanke said the Fed was studying up on how to unwind the massive expansion of its balance sheet so as not to fuel inflation once better economic times arrived.

“Although we began the process by asking the firms to submit their own estimates of expected losses and revenues, we by no means accepted these submissions uncritically,” he said.
ENDS



A few points...

1: WOW... This really installs faith in the system. I especially love the fact that they haven't worked out how to deal with the inflation jeanie: "Dr Bernanke said the Fed was studying up on how to unwind the massive expansion of its balance sheet so as not to fuel inflation"

Studying up. STUDYING UP! You're kidding me. I'm trying to get my head around the fact that they undertook QE without first having a game plan to deal with inflation. It truly beggars belief, and just adds more weight to those who are saying its too late, you can't unprint the money and erase its resultant effects. (go gold)

2: The fact that he had to defend the USD says it all.

3: We have all seen how the "Federal Reserve is committed to making sure we have price stability in this country”. Yep, about 10 minutes after the opening bell is the normal commitment.

4: “Although we began the process by asking the firms to submit their own estimates of expected losses and revenues, we by no means accepted these submissions uncritically,” Should read: We took the banks at their word with their stress test submissions, but we had a look of concern on our face when we accepted their numbers.

5: "policy makers were “committed to removing accommodation in a timely way”. Watch out when they do take the crutches away, but I don't think it will be on their terms, more likely the fed will need the crutches back once China starts selling dunny paper, into the junk treasury market.